Grain & Energy Prices Trend Lower

Lower prices for feed and fuel ease the cost side of breakevens.

SAN DIEGO, Calif. (Jan. 28, 2016) — Lower prices for grain and energy can be expected throughout 2016. That was the message CattleFax analyst Chad Spearman shared during his remarks on Jan. 28 at the 2016 Industry Outlook session hosted by CattleFax in conjunction with the Cattle Industry Convention & NCBA Trade Show in San Diego.

Ample supplies of grain — corn, wheat and soybeans — and an oversupply of oil will limit upside price potential in the coming year. Spearman also said the strengthening U.S. dollar and slower growth for China will limit grain export demand.

Ample supplies of grain — corn, wheat and soybeans — and an oversupply of oil will limit upside price potential in the coming year for these commodities, said CattleFax analyst Chad Spearman.

Spearman says corn supply is expected to remain steady with the upcoming growing season. It is projected farmers will add 1.5 million corn acres, resulting in a steady to larger supply moving into 2017.

Regarding prices, CattleFax anticipates the spot corn futures price average for the year will be $3.75 per bushel (bu.) compared to $3.77 per bu. in 2015. However, a wider range from the average is expected. For the first quarter of 2016, CattleFax says corn prices will find support from $3.35 to $3.45 per bu., with resistance from $4 to $4.10 per bu. May to December price lows are being projected at $3 to $3.30 per bu.

Soybean acreage for 2016 is expected to gain 1.3 million acres, while wheat acreage is expected to be down 2.7 million acres, mostly due to reduced winter wheat plantings. Spearman says the combination of cheaper energy and protein feeds combined with the recovery in hay stocks, should keep hay prices under pressure for the year as well.

An oversupply of energy products is expected to continue in 2016. The U.S. has decreased rig count, but domestic production has remained strong. As a result, U.S. crude oil imports are the lowest they’ve been since 1995.

In 2015, domestic crude oil production averaged 9.3 million barrels per day. In 2016, that number is projected to be 9.1 million barrels per day.

As a result of the strong supply, WTI crude oil averaged $49.96 per barrel in 2015, a 48% price decline from the previous year. A range from $25 to $48 per barrel is expected for WTI crude oil in 2016.

Retail gasoline prices averaged $2.54 per gallon in 2015 and are expected to range between $1.90 and $2.40 per gallon in 2016. As well, retail diesel prices in 2015 averaged $2.72 per gallon and are estimate to be $2.10 to $2.65 per gallon in 2016.

Based on these projections, Spearman says a couple takeaway messages can be observed:

With retail fuel prices coming down, the miles traveled per capita is picking back up. This should be supportive to U.S. ethanol production, according to Spearman. Some might also say that with increased travel, consumer spending could boost the economy along with restaurant beef sales.

With the massive oil production outstripping demand, Spearman acknowledges, “Now oil prices are so low, we’re concerned about the economy.” The continuing concern to watch going forward will be global demand and the impact of economic growth and geopolitics.

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